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Please can you help with the following question:
ABC Co has paid the following dividends per share in recent years:
20X3 – 30.0
20X2 – 29.8
20X1 – 28.9
20X0 – 28.1The dividend for 20X3 has just been paid and ABC Co has a cost of equity of 11%.
Using the dividend growth model, what is the ex div market price of SKV Co shares to the nearest cent?
A. 3.48
B. 3.41
C. 2.73
D. 2.79You must have an answer in the same book in which you found the question and so in future you should ask about whatever it is in the answer that you are not clear about – then I will help you.
The dividend growth rate = third root of (30.0/28.1) – 1 = 0.022 (2.2%)
Therefore, using the formula from the formula sheet, the MV = 30 (1.022) / (0.11 – 0.022)
= 348 (or $3.48)All of this is explained in my free lectures. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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